‘Work sharing’ may prove valuable lifeline for California employers

By June 11, 2020 September 2nd, 2020 COVID-19 Insights, State & Local Taxes
Work Sharing Program may prove valuable lifeline for California employers

Companies throughout the country and across the state of California can finally see the light at the end of the tunnel. As government-issued stay-at-home orders begin to expire, many businesses have set their sights on reopening and bringing their employees back into office. However, the process is likely to be a gradual one as economic activity begins to ramp up. As companies consider pathways to phase employees back to the job, California employers should familiarize themselves with one program in particular: the California Work Sharing Program.

In short, the California State Legislature established the program in 1978 with the objective of helping employers and employees avoid some of the burdens that accompany a layoff situation. Under the program, employers can reduce wages and hours for individual employees, and employees can then take advantage of unemployment insurance benefits.

While the program has been around for over four decades, it is less widely known amongst employers. However, with the passing of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020, the program (and similar programs in 25 other U.S. states) has gained more traction and interest. Under the CARES Act, anybody who receives benefits from a work share program also automatically becomes eligible for the CARES Act’s full $600-per-week federal unemployment benefit. The Department of Labor (DOL) has confirmed this in guidance released in April and later reiterated the fact in a press release issued on May 4. Furthermore, unlike normal unemployment benefits, the CARES Act made work-sharing benefits 100% federally funded.

As you begin reopening your California business, regardless of size or industry, it may be worthwhile to explore the work sharing program as a means to reduce hours and maintain your workforce.

What is the California work sharing program?

Generally, a work sharing (also known as shared-work or short-time compensation) program is an alternative to layoffs for employers experiencing a reduction in available work. The program preserves the employees’ jobs and employers’ trained workforces during times of lowered economic activity.

Effectively, it allows employers to reduce the hours of work for some employees rather than laying them off. Those employees experiencing decreased hours can collect a percentage of their unemployment compensation (UC) benefits to replace a portion of their lost wages. The driving principle behind the program is to alleviate the adverse effect of reduced business activity by averting layoffs and ensuring that these workers can resume prior employment levels when business demand increases.

The California-specific program allows for those individuals experiencing reduced hours and wages to receive payment of Work Sharing Unemployment Insurance benefits. Affected employees may receive unemployment insurance benefits proportionate to the percentage of the reduction in normal work hours and wages due to the work sharing program.

The California Employment Development Department (EDD) offers the following example:

Due to an economic downturn, an employer with 100 employees finds it necessary to lay off 20 employees. However, rather than lay off these employees, the employer participates in the Work Sharing program. The employer keeps all 100 employees on the payroll but reduces their workweek from five days to four days, thereby achieving the same desired 20 percent reduction in payroll.

All 100 employees continue to earn wages for four days and also are eligible for Work Sharing benefits for the fifth (nonworking) day. The employer retains all trained staff and, when business improves, the employees resume their five-day work schedule.

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What are some notable characteristics of the California work sharing program?

California is one of the 26 U.S. states with an operational work sharing program in place. (See a list of the other 25 states below.)

The California work sharing program is flexible by nature. It provides employers with the ability to rotate the employees affected by reduced hours and wages each week. In addition, the employer determines which week(s) will have hour and wage reductions.

Furthermore, the state approves a work sharing program for a 12-month period. If the employer requires work sharing beyond the original 12-month allotment in order to avoid layoffs, they can submit an application for a subsequent plan. If the employer submits the application for renewal in a timely manner, the plan may receive immediate approval after the prior plan expires.

The federally authorized program, also called “short time compensation” (STC), allows workers in at least 26 participating states to receive partial unemployment insurance to cover hours they are no longer working instead of being laid off. The program is anything but new. Rather, it has been around for decades to keep workers at least semi-employed during recessions.

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Who can participate in the California work sharing program?

Who can participate in the California Work Sharing Program (1)Any employer experiencing a reduction in production, services, or other conditions that cause the employer to seek an alternative to layoffs may participate in the work sharing program. According to the EDD’s Fact Sheet, participants in the program must meet the following criteria:

  • A minimum of two employees and at least 10% of your regular workforce, or a department of the workforce, must be affected by a reduction in hours and wages.
  • Hours and wages must be reduced by at least 10%, not to exceed 60%.
  • Health and retirement benefits must stay the same as before, or they must meet the same standards as other employees who are not participating in Work Sharing
  • A corporate officer or major stock holder who is deemed to have a significant investment in the company may not participate in the work sharing program.

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Are there other employer requirements to participate in the California work share program?

In addition to the above stipulations, an employer’s business must meet all of the following requirements:

  • Be a legally registered business in California.
  • Have an active California State Employer Account Number.
  • The employees’ bargaining unit must agree to voluntarily participate and sign the application for work sharing.
  • Affected work units to be covered by the work sharing plan, and each participating employee, must be identified by their legal name and Social Security number.
  • Employees must know in advance that you plan to take part in the work sharing program.
  • All necessary reports and information are provided to the EDD.

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Are there any restrictions for the California Work Sharing program?

The restrictions for the California work sharing program include the following:

  • Leased, intermittent, seasonal, or temporary service employees cannot participate.
  • Corporate officers or major stock holders with an investment in the company cannot participate.
  • Work sharing cannot be used as a transition to a layoff.

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How does an employee qualify for work sharing?

The employee must meet the following requirements for each work sharing week:

  • The employee must be regularly employed by the employer whose Work Sharing Plan Application has been approved by the EDD.
  • The employee must be a part of the employer’s permanent regular workforce and not a leased, intermittent, temporary, or seasonal employee.
  • The employee must have qualifying wages in the base quarters used to establish a regular California unemployment insurance claim.
  • The reduction in each participating employee’s hours and wages must be at least 10% and no more than 60%.
  • The employee must have completed a normal work week (with no hour or wage reductions) prior to participating in work sharing.

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If I have multiple locations, can I have more than one Work Sharing plan?

No. The state only approves one work sharing plan per California employer account number. However, you may include units at the same or different locations in the work sharing plan.

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How do I apply to participate in the work share program in California?

California employers can apply for or renew a work share program online. The online application can be found here. (Employers also have the option to apply by mail with the Work Sharing (WS) Unemployment Insurance Plan Application (DE 8686).)

All work share programs begin on Sunday. The earliest date to start a new plan is the Sunday before the first day you contact the EDD. As noted above, all work sharing plans receive approval for one year (12 months).

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What are the pros and cons of the work sharing program?

Pros

The objective of the work sharing program is to help employers and employees avoid some of the burdens that accompany a layoff situation. If an employer retains employees during a temporary slowdown, they can quickly gear up when business conditions improve.

As a result, employers are spared the expense of recruiting, hiring, and training new employees. On the other hand, employees do not have to manage the hardship of total unemployment.

Now factor in the current federal and state unemployment benefits under coronavirus-related relief legislation. Right now, if employees receive even $1 in unemployment insurance, they are eligible for the $600 per-week enhanced benefits issued under the CARES Act. Plus there are now a variety of incentives for employers to use work-sharing programs – including a temporary break on state payroll taxes – and millions of dollars to help states create or run the initiatives.

Cons

Admittedly, the largest drawback of the work share program is the administrative burden. After receiving approval, employers must complete Work Sharing Certification, DE 4581WS forms for each week an employee qualifies to participate in the work sharing program. Employers are responsible for the completeness and integrity of each certification form they issue to a participating employee.

Also note, work sharing benefits are charged to the employer’s reserve account in the same manner as regular unemployment insurance benefits. Charges to a reserve account tend to adversely affect the reserve account balance, thereby increasing the potential for a higher unemployment insurance tax rate in future years.

If you are looking to participate in a work sharing program, you should review your latest Notice of Employer Contribution Rates and Statement of UI Reserve Account, Form DE 2088, to determine the probable effect on your reserve account. The EDD mails this notice to employer’s each February and it reflects the status of reserve accounts as of the prior June 30.

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What U.S. states currently have work share programs?

Currently, 27 states have work share programs established in law that meet the new federal definition. However, only 26 of those 27 states have operational programs. These states are as follows: Arizona, Arkansas, California, Colorado, Connecticut, Florida, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Washington, and Wisconsin.

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How can Squar Milner help?

As we all cautiously and deliberately plan our return to work, your Squar Milner professionals are here to help you devise effective business strategies tailored to your specific needs. We can work with you to determine the practicality and usefulness of a work share program for your business, as well as evaluate the impact of a work sharing program on your tax strategy and beyond.

To learn more about the California Work Sharing Unemployment Insurance program, please refer to the EDD’s comprehensive guide here or visit their official website. If you wish to learn more about other relief programs in place as the country looks to overcome the devastating effects of the coronavirus pandemic, please refer to the Squar Milner COVID-19 Resource Center or sign up for one of our COVID-19-related webinars.

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Disclaimer: This material has been prepared for informational purposes only, and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional tax planner or financial planner. All information is provided “as is,” with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.

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